Assessing Adverse Selection and Health Care Demand in Micro Health Insurance: Evidence from a Community Based Microfinance Model in India

Abstract: Delivering health insurance to the poor through microfinance institutions (MFIs) has been gaining attention as a method to overcome informational asymmetries and increase demand for insurance. This study evaluates a staggered roll-out of a micro health insurance (MHI) contract to women in microfinance Self Help Groups (SHGs) in rural Maharashtra, India. I find strong evidence of adverse selection – those that chose to enroll were significantly more likely to report illness prior to the enrollment period. I find that insuring SHG sub-units in the MFI, relative to voluntary individual insurance, increased demand but does not reduce adverse selection. Contrary to other studies on micro health insurance, I fail to find robust evidence of the health insurance increasing demand for health care, and even find limited suggestive evidence of a reduction in self-reported illness and health care utilization. I further find no evidence that the health insurance led to a reduction in debt or demand for credit, or that the insurance offer resulted in members withdrawing from the MFI.